What is the impact of Brexit on M’sian property investors?

LAST night, a referendum was held to decide if the United Kingdom should stay or leave the European Union (EU), a political and economic partnership of 28 countries.

The "leave" vote won by a narrow 2% margin.. 

The pound has also slipped to its lowest since 1985. At press time, the exchange rate is RM5.50 against one pound sterling.

And now, investors — including those in Malaysia — await its far-reaching implications with bated breath.

“If Britain does exit the EU, there will be a period of rewriting of a lot of trade agreements with Britain’s respective trading partners and there may be a revision of policies in the nation. Ultimately, all sectors are intertwined, including the property market,” independent economist Lee Heng Guie told TheEdgeProperty.com.

“Nonetheless, it is important to note that those who already have property investments in Britain are mostly long-term investors so, they would just have to stomach this period of uncertainty until things are more stable,” he added.

Why was the referendum held? In 2015, British prime minister David Cameron —an advocate of the remain stance — had promised to hold this referendum should he win the election in response to growing calls from his own Conservative MPs and the UK Independence Party (UKIP). They claim that Britain has not had a say since 1975, when it voted to stay in the then-European Economic Community.

Proponents of the “stay” vote say trade among EU members is easier, and a smoother flow of immigrants – mostly job-seeking youths — through the union will boost economic growth and help pay for public services.

Sadiq Khan, the newly appointed mayor of London, concurred. “About half a million jobs in London directly depend on Europe. As a city, we export more than £12 billion [RM71 billion] a year to Europe, and London is home to the European HQ of 60% of the world’s non-European global businesses. Having access to the EU markets is crucial to the success of the City of London. This is why the prospect of Britain leaving Europe is so catastrophic,” Khan said in a statement published by The Evening Standard.

An advocate of the “leave” campaign, ex-London mayor Boris Johnson said if the Brexit is successful, the UK will be like a “prisoner escaping jail”. It will finally be able to negotiate its own free trades, he added.

What does this mean for the property market?

JLL London head of residential research Adam Challis believed that the mainstream residential market is broadly undeterred by the EU referendum, although the risks of leaving the EU are becoming a bigger concern.

“Buyers are centrally focused more on economic and job prospects, both of which are expected to experience modest negative impact should British voters wish to leave the European Union. Some purchases are now being delayed until after June 23, which could mean a busier than usual summer selling period, particularly if voters chose to remain,” Challis told TheEdgeProperty.com.

He said international investors will balance uncertainty against potential currency arbitrage opportunities.

“London’s role as the world’s de-facto capital city will remain unchallenged and this will continue to support and draw demand for real estate,” said Challis.

Knight Frank global head of research Liam Bailey noted that the mainstream UK housing market is primarily driven by domestic dynamics and an exit from the EU will not impact the demand and supply imbalance, which is a key feature underpinning current housing market trends.

JLL’s Challis agrees. “There are downside market risks if the Brexit takes place, but there are also arguments to suggest that the UK will adjust relatively quickly to the new reality. While institutional structures will undergo quite large changes, the trading relationship with the rest of Europe will remain vital to both the UK and the rest of Europe regardless of the outcome,” he concluded.

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This story first appeared in TheEdgeProperty.com pullout on June 24, 2016, which comes with The Edge Financial Daily every Friday. Download TheEdgeProperty.com pullout here for free..